Knowing Your Numbers
If there is such a thing as numeric self-esteem, I don’t have it. I am the guy who aced his liberal arts courses but just scraped by in math. Yet here I am, a business owner, and numbers mean everything. What to do?
Hire it out … the right way.
If numbers come naturally to you, or you find you can effectively learn and then efficiently process the information, you may be better off doing the lion’s share of the numbers in your office. Yet when I talk to entrepreneurial Elder Law College members and other small business owners, I find that numbers are not their string suit.
There are books and other experts who will tell you that you must learn basic accounting principles and some who will tell you that a small business owner must do their own books. While this may be right for some, it is not right for everybody. To be the most successful business owner I can be, I must be a master of time management. I must put in my time where my personal abilities are most valuable. For me, I am better off outsourcing the numbers so that I can focus on what I do best.
To this day, I still get numbers wrong unless I have my numbers person at hand. Even on Elder Law College programs, I have sometimes vastly misstated my own firm’s numbers when it comes up. It sometimes embarrasses me until I tell myself that is not my job. If you are not great with numbers, it should not be yours either. Put your time and energies where they are most needed – lawyering, learning, marketing, balcony-view planning, and the like.
What numbers matter?
The more data you have the better. You may not see the need for certain data points today, but I can almost guarantee you that this will change in the future and you will then wish you had historical data. Here is an example:
If Mary raises her consultation fee from $400 to $500, how will that affect her income? The answer is not as linear as adding $100 to last year’s consultation revenue to predict this year’s revenue. An increase in prices in any business often comes with some decline in purchasers. A law firm is no different. Perhaps 90% of Mary’s callers will be willing to pay the increased price. This means a 10% reduction in initial appointments. This change affects not only the consultation revenue but also the overall income from all new clients because that 10% of lost business is not retaining you for your full fees. To understand the real effect, without it being total guesswork, it would be helpful to know at least the following data: (1) what percentage of callers make a first appointment at the current fee schedule; (2) what is the average total revenue (not just consultation revenue) from each new client; (3) when Mary last raised her consultation fee, what was the effect on number of consultations. Just that data would be super informative. With more data, we can go further. How much time is spent on consultations? If Mary raises her rates and sees 10% less clients, what can best be done with that extra time? Data could mean everything to this decision. Mary may be surprised to learn that she will make significantly more income if she reduces her consultation fee instead of increasing it.
The more data Mary has, the more likely she will make a good decision. Because this decision can mean a big difference on her bottom line, Mary is well served by investing the time and money to build data collection as soon as possible. We are talking potentially hundreds of thousands of dollars of gross income differential between these paths.
Sourcing and Outsourcing
Now that we have established the importance of data, how does one collect, process and use it?
Part of this is sourcing the right tools and yes, this means software. It may well mean the software you already have. Call the consultant and find out what your current software can do for you. It might mean purchasing new software. In recent years, law firm software and accounting software have become more integrated and holistic and can easily gather the type of data you need.
Even with great software, properly used, it is still necessary to have a numbers person. If that is you, great. If not, find a numbers person. This can be just a bookkeeper but I hope you can find more. What you really need is a Chief Financial Officer but because of your size, you probably cannot afford one. A good CFO will know how to efficiently gather data, process and use it and, unlike most bookkeepers, is involved in creative problem-solving and identifying risks and opportunities. This person can be a valued advisor. Fortunately, it is possible to buy a part of a CFO. In this gig economy where professionals often parcel out services, you may be able to find a qualified CFO-type who will provide set services for a monthly fee. Check around by asking other local business people for recommendations. Call the local chapter of the American Institute of Certified Public Accountants. If finding someone local does not pan out, broaden your search, and consider whether it may be possible to do the job remotely. It probably is.